KEROSENE SUBSTITUTION PROGRAMS IN INDONESIA: INSTITUTIONS AND PUBLIC POLICIES

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KEROSENE SUBSTITUTION PROGRAMS IN
INDONESIAINSTITUTIONS AND PUBLIC POLICIES

• Asclepias Rachmi
• Indonesian Institute for Energy Economics
• 31st IAEE Pre Conference on Clean Cooking Fuels
  Technology
• Istanbul, 16-17 June 2008

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Agenda

• Energy Consumption
• Fuel Price Policy
• Kerosene substitution program
• The Program in brief
• Role of institutions
• Evaluation
• Program Implementation
• Complicating Factors
• Energy Security
• Concluding Remarks

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ENERGY CONSUMPTION
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Energy Consumption in 2005 (1)
Source Handbook Statistik Ekonomi Energi
Indonesia 2006

• LPG consumption in 2005
• Industry, Household, Commercial
• Household is recorded as major user
• Small overall share (1)
• Small market -- limited infrastructure
• Available in bulk and retail in 50kg, 12 kg,
• and 6 kg units

• Kerosene Consumption in 2005
• Used by all consumer groups as is and mixed with
  other fuels
• Household is recorded as major user
• Available in bulk and retail in flexible sizes
• Relatively easy to handle, wide spread uses

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Energy Consumption in 2005 (2)

• Household
• Use 28 modern energy type mostly
• kerosene, and 72 conventional biomass
• Kerosene for cooking, lighting, initiate fire
• for all kinds of purpose, etc

• Industry
• Consumes various energy types
• Kerosene and LPG recorded share in
• the sector energy mix is only 1 each

• Substituting kerosene with LPG implies
  significant change in both markets
• Market size
• Infrastructure for production distribution
• Operational details for both the supply
• and demand side actors

Source Handbook Statistik Ekonomi Energi
Indonesia 2006
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FUEL PRICE POLICY
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Fuel Pricing Policy (1)

• As stated in the Blue Print of Kerosene to LPG
  Substitution
• Program
• Certain fuels (Bahan Bakar Tertentu) which
  requires subsidy price setting by the Government
  through laws and regulations
• Fuels for national needs to be determined
  B-to-B, approved by the Government
• Fuels used by large amount of people but
  unsubsidized prices are based on certain
  formulas
• General fuels no price regulation, treated
  similar to general commodities

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Fuel Pricing Policy (2)
Kerosene Prices Apr 2001-Mar 2008

• Kerosene prices
• Price differentiation
• Varying systems formulas
• Current prices
• - Industry MOPS 15
• - Retail IDR 2500

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Fuel Pricing Policy (3)
Source IIEE, compiled from various sources

• Implications uncontrollable subsidy allocation
• Fuel price subsidy encourage more consumption
  increase imports of products
• Domestic price differential provides incentives
  for misuse,
• High and volatile international price is
  translated to unstable state budget

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KEROSENE SUBSTITUTION PROGRAM
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The Substitution Program in Brief

• Targets
• Zero Kero in 2012
• No subsidized kerosene for cooking in 2012
• Kerosene available at economic price and in a
  higher value form (e.g., aviation turbine)
• Distribution of 3kg LPG to 6 million household in
  2007 and 42 million household in 2012
• Implementation strategy
• Reduce kerosene subsidy gradually, distribute LPG
  3kg package based on priority lists
• Develop LPG infrastructure
• Involve local businesses
• Prudent supply capping of subsidized kerosene
• Intensive campaign on using LPG safely
• Improve government role (central, provincial,
  municipal, community level) in monitoring the
  distribution package
• Distribution of LPG package
• 2007 pilot project in Jakarta, initial step in
  13 municipalities in Java, then other areas in
  Java-Bali
• 2008 onward Sumatera and other islands in steps

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Role of Institutions

• As stated in Blue Print
• Dept of EMR coordinator, policy
• Dept of Finance budget
• Dept of Industry LPG canister
• Ministry of Women Empowerment public outreach
• Ministry of Cooperation and Small Business LPG
  stove
• Dept of Social Affairs business shift of
  kerosene distributors retailers
• BPH Migas reduction of kerosene supply
• Pertamina program implementor

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EVALUATION
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Program Implementation (1)

• News monitoring indicates unclear work division
  shift in tasks
• Difficulty in carrying duties, some links to
  budget constraints
• Increasing responsibility of the program
  implementor
• Outcome below target
• Scarcity in kerosene and LPG 3kg supplies
• Both in locations of program implementation as
  well as other areas
• Lead to adjustment in kerosene supply reduction
  at locations of program implementation
• Induced market operations (extra supply)
• Impact in more hardship people complaints

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Program Implementation (2)
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Complicating Factors

• Energy price adjustments
• Government increase general fuel prices in May
  2008
• Pertamina
• Regular adjustment of fuel prices for industry
  (non-susbidized, MOPS as reference)
• Price of LPG 50kg (non-subsidized) increased by
  20-25 in January 2008
• Subsidy package (compensation program)
• Increase in general fuel prices is accompanied by
  a set of compensation package direct money
  transfer for household, subsidy for schools and
  university students, subsidy for supply of basic
  food staples, etc.
• Increase in kerosene consumption
• Relatively larger increase in price of other
  fuels
• Natural disaster in various areas
• Scarcity of supply of both kerosene and LPG lead
  to panic buying

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Energy Security

• New paradigm of energy security
• Each one in the business chain may have different
  perspective on what energy security means for
  each of them
• It is not only about physical supply of energy
• 4As as indicators
• Availability
• Accessibility
• Affordability
• Acceptability
• It is in fact in line with Sustainable
  Development concept balancing social-economic-env
  ironmental concerns
• Energy security and sustainable development
  together
• More aspects to be considered,
• Indicates ways to address concerns of parties in
  the energy value chain
• Important for addressing the national interest

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Concluding Remarks

• Data accuracy
• Energy consumption size, users, area
• Subsidy target
• Planning
• Program design substance, institutions, budget
• Implementation strategy coordination, public
  awareness acceptance, monitoring
• Energy security perspective
• To balance social-environmental-economic
  interests
• To address short long term concerns
• To be more realistic take into account position
  perspective of everyone in the value chain